Thursday, December 25, 2014

Elizabeth Holmes: The 2009 Stanford Podcast

Note: This is not a transcript; these are summary notes and not verbatim.

Introduction: Theranos is the fusion of therapy and diagnosis. Please welcome Elizabeth Holmes back to Stanford.

Holmes:

I used to sit in these classes, wonderful to speak at one. A wonderful forum to listening to people who successfully built companies. I'd like to mostly answer your questions, that the most productive use for you. But a little background.

I dropped out of Stanford in my sophomore year. I don't know if I should be recommending that or not. I was doing some work in chemical engineering, a little in electrical engineering. I wanted to explore integrating biological systems and information technology - to integrate those two sets of technology, to develop what we now call a healthcare system which is a platform for being able to extract actionable information from a blood test to make better medical decisions earlier than possible with the conventional infrastructure.

Initially I had little idea how to do this, but we found good people to work with, build a company, with the encouragement of Prof. Channing Robertson. I left Stanford and we've built the company around home healthcare monitoring systems that allows patients in the context of the home to monitor blood in real time, get analysis, not just standard blood tests, but also protein analysis in Point of Care (POC) to profile disease progression in a way no one has been able to do. The technology to monitor the blood comprehensively didn't exist.

The technology has many applications. We've focused on a niche, the total market, pharma clinical trials, where we can use the technology to rapidly ID the efficacy and safety of a drug. Far faster than is possible with conventional infrastructure. Which is the foundation for being able to change the way in which drugs are developed. We can accelerate the clinical trial timeframes dramatically. And not only leverage the ability to get earlier insight to change develop, allowing adaptive developing in clinical trials, while changing the economics of development, with less time and less patients.

We've developed a platform that can be used with drugs to raise the risk benefit profile of drugs - "thera nos" drug + monitoring.

You give a drug, poke a finger, be sure it's safe and at the right dose. Take a fingerstick of blood, read it in real time in the home. We have a platform, with higher integrity system faster and a better understanding of disease progression, with more ability to identify better interventions and delay the progression of disease.

I went through the process, leaving Stanford, raising money, building a team, which is absolutely fundamental, we are as good as our people. We have great technology leadership from many disciplines. What was unique and challenging, we integrate many technologies into this "home lab" - chemists, software engineers, all working together. It's not as simple as you might think. We had to pick people, the investors who share a long term vision. I found those people. In my mind, the most important thing in starting a new company is to be able to find new people who can stand by you, and achieve the goal of building the business.

Some companies are to be acquired, or fill a short term need, but we define a new industry. The people you work with, determine the success.

Can I pause and start a dialog with you?

Q

Where do you find people?

A

Most are older than me! I found the people through originally people I knew from Stanford. There's a phenomenal network here. Connections to industry, depth of expertise. Top tech talent in many disciplines. Very experience people.

Q

How long did it take from funding to "product?" To delivery?

A

It took a lot longer than I thought. And it was different from our original ideas. Yes. Far longer, and very different. What was consistent, we filled the same need, the same customer requirement. To get the technology to work; and then get it to scale, which we had to learn about. The process of iterating the technology was invaluable. Figuring out what did NOT work. It gave us a huge competitive advantage over central labs.

Q

(inaudible)

A
I knew from the time I was young I wanted to start and build a great company and make a great impact with my life. I wanted to answer: How do we change the phenomenon, the reality, when someone we care about gets really sick, there is little to do, it's too late. How can we change that system? That's the most valuable product we could build.

I went through the identification of market opportunities to build a business, to use cash from operations, to have a foundation. But that was the question.

Q

Are there diseases you focus on? Heart? Cancer? Pharma interest?

A

It does to some extend, the pharma interest, the produc that a pharma wants and build the system, customize what we measure, and our analytics, for the pharma company. And rapidly.

But the technology can do any different combination of chemistries on a single platform. We have the ability to invest in building what we call "libraries" - customizable chemistries for disease areas. So we focus where there is tremendous short term opportunity to impact our understanding of disease progression and standard of care. Also cancer, infection, CV, and metabolic diseases.

Q

More about how to evaluate someone and recruit across disciplines?

A

The first piece. How do we evaluate candidates? Specifically the recruiting process. Bring together people from different disciplines. Evaluating candidates is hard. There's two parts. For Theranos: technical expertise (50%). And: The hunger to come in and take ownership and build it. You need especially in a startup: it's hard, and fast. If every person owns what they do, then, even when it is tough, we get a group of people who are smart, determined, and will succeed not matter what the problem.

It's that quality, determination, hunger, ownership, is a huge piece.

We're still improving. But you look for these qualities and see them when you talk to them. Also, you have to trust them. I have not had great success with headhunters, but great success with "networking."

Q

Website...Larry Ellison, a board member!? How?

A

Good question. He was an investor. We seem to be interesting enough, powerful enough, for him to come on board. he built a very successful company, that's very valuable. Our company can become an industry.

Q

Can you measure RBC, WBC?

A

It depends. There are some cell surface measurements we can do. We've geared it mostly toward proteomic. PSA, CRP. There's thousands, and commercial tests for central labs. But not in POC in high quality as needed.

Q

Tina Seelig (SU) is writing a book, "What I Wish I Knew At 20." [*] You founded Theranos in a nuclear winter (for funding). It's 2009. Any lessons learned? For new starters?

A

Well, I thought about that earlier today. For tonight.

Cash flow! You need a good idea, and excited customers, but drive your business from cash from operations. That's the most fundamental piece. I guess another piece: You have to understand WHY you are doing it. When I started, it was a good idea, I had passion, but in the process, you do hit times when you question, "Why am I doing this?" I went through a period, it was clear, if I needed to, I would restart this company several times. It's not about money, title, or people. That's what you need. If you do it for title...money...superficial things, you may make decisions that alter the course of building the business. You have to know why it is you do what you do.

Q

How did you come up with the innovative technology?

A

It was iterative. We had ideas. You try them, some work, some don't. You figure out missing pieces. Fundamentally, you get enough people who understand the different many pieces, the breadth of deep technical expertise to build an integrated solution. It's back to people. Rack your brains.

Q

How many people?
A

70.

Q

You have different plans...partner with pharma...develop systems...What is the most critical part of the whole plan is?

How do you prioritize?

A

So...There are different components and challenges to building a company. How do you prioritize? Within technology, how do you overcome challenges.

It's difficult to prioritize. Companies are different. For us, our business model, the technology and sales are the two key things. Product & Customers. And hiring, again. On the tech side, I don't think it's possible to outsource "invention" around tech challenges, it has to be insourced. Having gone through it, it's a process of having the right people, the right resources, the right questions, we went through several innovation cycles so far. You have to go into it, we'll try 100,000 ways to make this work, so if 99.000 fail, we will do this. That's conviction, and you force yourself. Then it is possible.

Q

What's your success rate in people and success, when they actually work for you then?

A

How good are we? By interviewing and recruiting? I think we get better with time. I asked a board member once. He ran a company called Pharmacia, an organization that went to Pfizer (Robert Shapiro), when you are really good, you hire right 50% of the time.

You try, you do your best. If it doesn't work, act tough on that, it's not personal. You have a framework to make that change and be OK. If people aren't right, and stay, it's big problems. You won't always be right. But then you also help them be successful, but work with people, saying, we expect "this" in 90 days. If they don't achieve that, you work with, or let go.

Q

Dropping out at 19? That's cool and scary! What did you think?

A

It was binary. I was at a point, I never intended to drop out, but spent all my time talking to VCs, not showing up, taking 20 units. So the idea was, take a leave of absence. Then, it became clear, another few classes in Chem E was not necessary for what I would be doing. I made a decision to "make it work" [outside of college.] I lived in the basement of a bunch of grads' house, and worked out of a basement, then we had a bridge loan for a little space.

Q

Many people have "ideas." Working through nuts-and-bolts, from Idea to VC discussion. I struggle...where were you wit the technology when you were really talking to people? You were accruing R&D on early VC money? They like to see a further tech concept before moving forward.

There ISN'T a formula. In our case, we had "enough" to be able to know that it could work. We needed to go build it, prove it, needed capital. If you have that foundation, idea, design, business model, to implement it WITH capital then that is the time to talk to VCs to get that capital. Or angel investors.

Q

What did you have? A little more specific? Ten slides about the idea?

A

In my case, I had ideas, patent applications, people, and conviction. We knew what we'd do with funding. To begin and develop this. Because we built something that never had existed, it was hard to say this is how we know when it works, since so much you can't anticipate will happen. It needs to work on a bench, in Europe, in China, shipped internationally. Big deal to scale up in that way, and we learned a lot we didn't understand. We did have designs and components.

Q

This is your first company?
A

I got into Stanford because I started a little company in high school!

Q

As a 19 year old, how to you convince people you understand what you are doing?

A

It's not all about age. People like Steve Jobs, Bill Gates, Dell, Ellison, Google guys, they demonstrated that. It IS about technology, people, conviction. You are convinced you will make something work no matter what. Then have people that believe in you. When I first raised money, I expected to talk to 200 people, so turn down's were not going to matter.

Q

How do you make people believe in you?
A

Believe in yourself. Conviction in yourself to make it happen. When you have that conviction, the people, the resources, tools, you will FIND them, even if it takes a LOT longer than you hope.

Q

You focused on pharma clinical trials? They are moving overseas with cost pressures. Your fit?

A

For Theranos, our technology obsoletes a lot of old costly infrastructure for the same data, and the central infrastructure data was NOT as good as our POC data. Shipping a sample rather than poke your finger, our way wipes out a lot of cost.

AND we reduce time, time is money. Accelerate approval. Accelerating decision making is the real economic driver.

Q

The role advisors and mentors played?

A

I think there's nothing more valuable that great mentors. Two in the room tonight! Having someone who can brainstrom, coach, knows what they are talking about. (For whatever "it" is.) And for us, it's building an industry by building a company. That's invaluable. Learn all the mistakes NOT to make! Mentors help with that. Think through the right way to approach it, doing it right.

Q

How Theranos "got started?" The idea, the who?

A

Well...I was...the long answer...I grew up learning Mandarin, spent time in China, came to Stanford, and then went to Singapore for biomedical research. I got a job that threw me into a lab doing micro array research. (Which I wasn't qualified for! No biology.). So either I had to learn it, or lose my job in Singapore! I tried to learn a lot very fast. We were developing novel protein micro arrays for SARS detection. The methods then, and I had microfluidics at Stanford, and people were using all the wrong tools. Better technologies were waiting elsewhere. So I started thinking, better ways to do it. That and the question of "How do you characterize disease progression?" The opposite is disease regression! So we wanted to build an integrated system for that. Integrating exposure to mass lab systems here, and technology there, by begging to be in the best PhD microfluidics at Stanford.

Then, I was at a point with a workable idea, so you have the mental process: Do I really "go do this?" That was not a long thought process for me. I wanted to, I was doing what I was supposed to do in life. This is what I would do.

Q

I'm working on an ethical bank, social entrepreneurship. How do you use banks?

A

Well, we never used banks. We might have loved to. It was a question of what terms we could get. Terms that made sense, whether equity, customer contracts. We could have worked with a bank that could have helped us, like equipment leasing. When we saw the term sheet, it didn't work. If you really needed the money, it was behind so many covenants. Maybe the future is different, we have receivables today.

Q

How did you build the first people, with X funding and X people?

A

Walking through that. OK. I had a few people. Starting out it was 3. Who worked for nothing. Originally. Those were people I knew from Stanford. One who I worked for, in a lab, and someone we'd met in Nanofabrication, an IBM visitor. They all wanted to help, we got a basement to build things. When we got funding, we stayed at about 5 people for six months. Those were technology people to run experiments on a bench, all SU based. Then we needed different types of people, new phases to build the company, it changes. At first you need "idea people." OK, we found those. Then "people to execute." It's not the same people. You may have to replace original people (based on constraints.) We went through that.

Q

Are the three still with you?
A

One is.

Q

If you go could back, as a sophomore, what would you do different?
A
I would still drop out. Different? I would have taken a different approach to people we brought in. There were a lot of things I didn't know. I had to learn the hard way, often. Don't know if there is a fast track at age 19 to learn that. Finding the people who really know what they're talking about is fundamental to succeed. We went through a process which took longer than I liked.

Q

Who was with you in those first VC meetings?

A

It depended. Sometimes I would meet by myself. Sometimes with people who had industry experience. We had Channing Robertson (Prof) at some meetings. It depended who we were meeting with. I presented. There wasn't a cofounder, but it depended what leverage I needed in a certain meeting.

Q

Did it go better by yourself or with people along?

A

No pattern. It depends. It's about the "value proposition" if you talk to the right people. Maybe the "wrong people" look for other flags and signals.

Q

Manage treatments? What is your vision for healthcare?

A

Ultimately, we see what we do as a standard of care. A vehicle to understand EARLY the onset of diseases. And enable interventions as early as possible.

Also a vehicle to figure out which drugs, when, are they safe, do they work. That's part of working with Managed Care and Healthcare Providers to become in the standard of care.

Q

What timeline do VCs give you?

A

Fortunately, I didn't have to have exact dates such as for a liquidity event. And it proved to being difficult, so that wouldn't have worked well. Not a short exit, or by a date certain.

We focused on cash from operations, solid business, solid pricing, that was fundamental. That is the foundation, and you provide returns to investors, and they will be excited about that. Not on acquisition on THIS day at THIS-X of my money.

Q

Patent applications? You, or a team?
A

The first one was by myself. Yes. With a lawyer.

Q

Why you? Why not some other 100 people? What is the #1 thing that made this happen?

A

I'm not sure!

It's been said, but - if you make a decision that you will make something work, and you are committed no matter what, and you are absolutely not bothered by failure or mistakes in the process, you can do alot. For me, this is that.

Stanford hosts the full seminar in audio. A few short clips are available on Youtube, e.g. https://www.youtube.com/watch?v=pIXAmjUFSso

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About Me

Bruce Quinn MD PhD is an expert on health reform, innovation, and Medicare policy. He helps both large and small companies understand and overcome hurdles to commercialization, as well as craft business strategies for a changing environment. CONTACT Dr. Quinn through www.brucequinn.com. BACKGROUND: Dr. Quinn has worked in academic medicine, Accenture business strategies, and for the Medicare program. EDUCATION: Stanford MD/PhD, MIT Postdoc, Kellogg MBA.